Catalio Capital Management’s new $85M fund is financing biomedical founders in ‘special situations’

Catalio Capital Management, an investment firm with offices in Baltimore and New York City, this week announced the close of a new fund that already counts a Johns Hopkins University-borne cancer detection company and patient-monitoring software system in its portfolio.

According to Catalio executives, the $85 million Catalio Credit Opportunities Fund I partners with what a statement called “39 world-renowned serial scientist-entrepreneurs at top-tier academic institutions in the US and Europe in order to vet opportunities to fund founders.” The fund, also described as a “special situations fund,” targets small and mid-sized private companies.

The fund is structured to offer both investors and founders a lower cost of capital than traditional equity. Catalio partner and private credit division leader John Henry Iucker said the inaugural fund was positioned as a hybrid model.

“We sit at the intersection of debt and equity [funding],” he told Technical.ly. “What we’re doing is giving up some of the upside of equity exchange for downside protection.”

Catalio invests exclusively in the healthcare and life science sector. It boasts a flagship fund and closed its Nexus Fund III at $400 million this year, according to cofounder and managing partner George Petrocheilos.

“It’s minimally diluted compared to traditional equity that the flagship, or any other VC or private equity, could provide,” he said of the new special situations fund.

Catalio, while open to nationwide investment, often finds itself doing business in the Baltimore region. The executives acknowledged the recent difficulty of operating in the capital investing environment.

“It’s a challenging time for companies,” Iucker said. “Even companies that have great science and are continuing a very strong cadence of development and value creation, it’s hard to raise money.”

The special situation fund is thus designed as an alternative to more traditional funds that can help support the company’s research and development. The fund looks closely at the scientific and clinical value of its investments, with at least 11 of 15 Catalio investors boasting an MD or Ph.D.

The fund’s $85 million came from a variety of investors that included family offices, endowments, foundations and insurance companies. Overall, Catalio executives said they manage over $1 billion in assets.

And they are very enthusiastic about their newest funding option.

“We’re thrilled about it,”  Petrocheilos said. “I think it’s a great opportunity for Catalio. I think it’s a great opportunity for these companies, and these young management teams and founders. to get access to minimally diluted capital.”